Unwinding a limited recourse borrowing arrangement after repayment of the loan

Since its introduction, Limited Recourse Borrowing Arrangement (LRBA) has served many Australians to buy real property in their SMSF. We have seen an increase in the number of SMSFs that have repaid the loans and are unwinding the arrangements.

Unwinding involves transferring the property under the arrangement from the holding trustee (otherwise referred to as bare trustee or custodian) to the fund trustee after the loan has been repaid in full.

While an SMSF may comply with the superannuation laws without unwinding an LRBA there are obvious benefits to still do so. Transferring the property to the fund trustee would mean there is much more flexibility with changing or improving the property, and there would be less ongoing administration and professional fees associated with maintaining a corporate holding trustee.

The look through tax treatment means that there would be no adverse CGT consequences from transferring the property to the fund trustee, as the current taxation laws treat LRBAs as if the holding trust did not exist (ie. the assets held by the holding trustee are deemed to be held by the fund trustee).

An unwinding transaction will incur costs to the fund including legal and other professional fees plus relevant government charges associated with transfer of a land. If it can be supported with evidence that the transaction was properly structured and implemented, the fund will be eligible for a concession or exemption on the stamp duty payable on the transfer (depending on the location of the property). Collating the required evidence for the concession and exemption may prove to be difficult over time and we recommend fund trustees to arrange an unwinding process as soon as possible once the loan has been repaid.

To make the process as smooth as possible, we offer a fixed fee, end-to-end service to advisers, starting with the preparation of the necessary superannuation compliance and transfer documents to the delivery of the newly issued certificate of title to you or your clients. 

Please contact us on 02 8296 6266 for further assistance.